Macquarie Bank is providing the £200 million warehouse facility. The Group’s intention will be to use the facility to warehouse loans prior to arranging term funding in the mortgage-backed securitisation markets, where the Group has considerable experience stretching back over 20 years. There has been increasing evidence of a recovery in the asset-backed market with numerous securitisations being launched by a number of major UK and European banks.

Paragon has held bond investor roadshows during 2010 and there is strong investor demand for Paragon residential mortgage-backed securities given the excellent performance of its historical mortgage assets. The number of accounts more than three months in arrears across Paragon’s portfolio of buy-to-let loan assets has continued to fall and is currently 0.86% of the book. This is significantly below buy-to-let market peers and also the wider mortgage market.

Lending strategy
It is Paragon’s aim to return to its market-leading position in the buy-to-let sector, specifically targeting professional landlords. This is an area of the market currently under served by buy-to-let lenders and one in which Paragon is well positioned given its expertise and experience in buy-to-let lending.

Paragon will offer a range of buy-to-let products through the Paragon Mortgages brand.
Paragon will continue to maintain a prudent and risk-averse approach to new lending, placing greater value on long-term customer relationships, credit quality and profitable products rather than simply market share.

This strategy has proved successful for Paragon and is a driving factor in the excellent credit performance of the Group’s assets.
During the eleven months to 31 August 2010, only £231.1 million of Paragon’s buy-to-let loan book has redeemed and the size of the warehouse facility, and its revolving nature, will provide the basis to support the expansion of the lending business.

Buy-to-let market
Competition in the buy-to-let mortgage market has reduced dramatically since the start of the credit crunch and the new lending sector has been dominated by just two lenders, accounting for up to 80% of new business written.

The number of available buy-to-let products has fallen from over 3,600 in July 2007 to under 280 in September 2010. Many of these products are focused towards the novice or small scale landlord, failing to cater for professional landlords’ more complex financial needs.

Strategy
The acquisition of loan portfolios and loan servicing of third party clients will remain a core part of the strategy going forward.

Trading
In addition to announcing its return to new lending, Paragon also today gave a trading update for the eleven months to 31 August 2010. The Board expects operating profits (before exceptional and fair value items) for the year to 30 September 2010 to be above the current market consensus forecast (£58.2 million) and around the upper end of analysts’ current expectations, which range from £40.5 million to £65.0 million. In addition, as previously disclosed, pre-tax profits will include an exceptional profit of £5.7 million on the purchase of Group securitised bonds.

Commenting on today’s announcement, Nigel Terrington, Paragon Group’s Chief Executive says:
“Despite the difficult environment over the past three years, Paragon has remained steadfast in its commitment to return the business to new
lending when conditions permitted.

“We are delighted to have secured funding on acceptable and sustainable terms to enable us to return to new lending and to work with Macquarie on this significant transaction. They are an ambitious and innovative institution and this transaction demonstrates clear evidence of their intentions to develop a leading role in the UK debt and equity markets.

“This is not only a significant development for Paragon; it is also significant for the wholesale funding and specialist lending markets. Paragon is the first independent non-deposit taking mortgage lender to secure funding to enable it to return to new lending. This shows that investor confidence is returning and the wholesale funding markets are recovering.

“Competition in the mortgage market has been sorely lacking, particularly as specialist lenders have largely been unable to secure funding or Government support to enable them to compete against high street lenders. Nowhere is this more evident than in the private rented sector where tenant demand is strong and expected to grow.

This is an increasingly important part of the UK housing market and competition is vital for a healthy and vibrant buy-to-let market and we aim to provide that competition.”
ENDS

For further information contact:
Paragon: Nigel Terrington
Chief Executive
0121 712 2024
Fishburn Hedges Andy Berry 020 7544 3044 / 07767 374421
Jane Padgham 020 7544 3061
Michelle James 020 7544 3056

If a new build developer or selling agent offers you a discount from so called "normal price" simply ask yourself why the skilled new build developer or agent needs to do this to sell the property.

Editor

*****************

All 49 flats in this block in Manchester are owned by amateur investors – 37 of them thanks to one property club. Now it is feared that their value has slumped by HALF – or worse – in four years.

Richard Dyson, Financial Mail -16 March 2008

Liability: Bridgewater view in Monton, Manchester

The get-rich-quick advertising of property investment club Inside Track has persuaded more than 100,000 people to attend seminars in the past few years.

But profits at the privately owned club, which are generated mainly by recommending newly built properties to fee-paying members, are sliding.

And the number of people prepared to sign up for its £2,500-a-time seminars has plunged. 

The firm, Britain’s biggest property club, last week axed 44 staff and announced it would cease offering free taster seminars held at hotels and conference centres. But it is not just Inside Track that is suffering – so are some of its clients.

Falling property values, a shortage of tenants and an oversupply of certain types of homes mean some landlords are losing money fast. Lenders are even turning away some landlords (see below), or forcing them to pay punishing rates of interest.

Inside Track boss Tony McKay admits the market is difficult. ‘There is less demand for seminars,’ he says. ‘We are focusing on existing members who are still buying properties but at a slower rate.’ There are 10,000 members, most of whom have bought membership for a fee of several thousand pounds paid on top of the £2,500 seminar bill and McKay says most are happy. Not all, however. 

Photographer Gary Hynes, 51, and dozens of others are sitting on mounting losses through investing in a block of flats called Bridgewater View in Monton, Manchester.

Before the block was built in 2004, Inside Track urged investors to buy two-bedroom flats it said were worth £140,000 and likely to attract up to £650 a month in rent. It is not known what the properties are worth today, but a two-bedroom flat in the development failed to sell at auction in December for a guide price of £70,000. The flat is now let for £425 a month.

Gary, from Oxton, The Wirral, and other Inside Track members are failing to cover their mortgages with rental income. They are having to dip into their savings to meet their mortgage bills and at least one is thought to have had his property repossessed. 

The development of 49 flats, all bought by amateur landlords, and in 37 cases on the recommendation of Inside Track, has been beset by problems. The location, build quality and security have been cited as just a few of many troubles. Inside Track denies responsibility.

Property analysis

This is Money’s expert analysis
 

On top of membership fees to join Inside Track, and the seminars they paid for, investors in this block also paid a ‘finder’s fee’ to the property club in return for the recommendation. Gary estimates he has paid Inside Track more than £9,000 in fees, including a finder’s fee of £4,540.

Big losses: Gary Hynes could be £50,000 worse off because of his property investment.

His total losses, including the estimated fall in the value of the flat, exceed £50,000, he says, and losses are mounting at £200 a month. ‘What we were offered was an armchair service where we were to trust the advice given to us by Inside Track,’ he says. 

‘It promised to do due diligence, check out these properties and recommend the best.’

More than 20 investors in the block have complained to the company. It has since paid for a security firm to make random visits to the site but denied any failure on its part.

McKay says that Inside Track relied on other experts for the recommendation and adds that just one out of ten developments meets its requirements as being suitable for investors. ‘We’re communicating with investors and we’ve helped where we can,’ he says. ‘When things go wrong, we do our utmost to put matters right.’

Inside Track will soon publish its accounts for 2007 and these are expected to show a sharp fall in profits and numbers of people at free seminars. In 2006, the number of attendees fell to 25,000 from 32,000 the year before. The number paying the £2,500 fee dropped to 3,400 from 4,400.

Squeezed lenders cut risky loans  

Inside Track’s promises are tempting: ‘How to retire completely debt-free in three to five years’ and ‘how to buy lucrative UK property with little or no deposit’. 

Whether such goals are realistic is questionable, but life has got harder for all property investors, especially those in newly built, inner-city flats. That is because of the change in mortgage lenders’ attitudes to risk.

Lee Grandin of specialist broker Landlord Mortgages says: ‘New-build is an area where experienced landlords do not invest. In a rising market, novices can make money buying anything, but that doesn’t work in a stagnant market.

‘Lenders have been stung and are taking action to protect themselves by refusing to lend or demanding bigger deposits. People who have bought in the past couple of years have been hit hard and, yes, they could struggle to remortgage.’
 

Nationwide Building Society will not lend money to landlords of new properties, while Coventry wants a 50% deposit on such properties. Other lenders to tighten terms on new flats include Kensington, GMAC, Woolwich and Abbey.

Lenders also worry about mortgage fraud. This has mostly involved newly built properties that have been overvalued.

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